Quadruple Bewitching And The Markets

Sometimes you just can’t keep a good market down, and sometimes you can’t keep a bad one down either. The S&P 500 is now up a lofty five percent this month, driven not by earnings, not by the economy, but by the momentum wave launched on the first day of the month.

Round-number targets galore beckon to traders and trading algorithms: 1500 on the S&P 500 (barely one percent away), 900 on the Russell 2000 (ditto), 14,000 on the Dow Jones (needs another two percent), and 200 on the MDY, the S&P Midcap ETF (thirty basis points away).

I saw the rally variously attributed to eBay (EBAY) earnings (give me a break), the strengthening labor market (continuing claims reached a ten-month high and the reported weekly number was dubious in the extreme, as you will see below), and the improving global economy (Italy announced it would be in recession in 2013). A Wall Street Journal storyline on Friday said it best: “Stocks Put on Their Rally Shoes.” Indeed, the market has fought off lower openings to finish higher seven of the last nine days.

With an additional fillip from the Republican “compromise” offer on the debt-ceiling, expect all of those round-number targets to be reached this week. The proposal is problematic, as it envisages a series of rolling extensions, to which the President just announced his opposition; a shift in terrain to the sequestration battle, whose deadline is simply another two weeks or so after the fuzzier debt limit is reached; and an attempt to shift the onus back on the (Democrat-controlled) Senate. That’s a challenge.

But it doesn’t all have to come to pass to get a debt limit deal done under the deadline. As reported in the Houston Chronicle and then in the natural gas prices higher.

There may be food inflation, and gasoline prices are higher than a year ago, but otherwise things have been mild lately. Both the consumer (CPI) and producer (PPPI) price indices reported ex-food-and-energy gains of 0.1% for the month of December. The CPI’s headline number was at zero, while the PPI showed a retreat of (-0.2%). The latter is due less to a fall-off in the demand for oil than to a fall-off in the demand for betting on oil futures in the face of the fiscal cliff, but the discussion of such unpleasantries is usually avoided by the business media.

Consumer sentiment fell instead of rising as expected, but it really isn’t that meaningful a number. It more likely reflects anxiety over the budget battle, a reasonable thing to have. The Fed’s “Beige Book” of regional economic conditions had no surprises and could have been called the “lukewarm” book.

And overseas, by a remarkable coincidence, all of the Chinese economic data came in just ahead of consensus. Very gratifying for the new premier, I am sure. No doubt a complete surprise, too.

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Next week’s economic calendar is light, leaving a heavy calendar of earnings reports free rein. Monday is the holiday, and after that we’ll get existing home sales on Tuesday and new home sales on Friday. The latter one should get a lot of attention, given the current market infatuation with housing. A couple of regional Fed indices are on tap as well (Richmond, Kansas City), but the number I’ll be watching is the Chicago Fed index on Tuesday.

Notable earnings reports next week include;

Mon……..Markets closed.
Tues…….Johnson and Johnson (JNJ); Verizon (VZ), Google (GOOG), IBM
Wed…… United Technologies (UTX); Apple (AAPL), .
Thurs……AT&T (T), Microsoft (MSFT)
Fri……….Honeywell (HON), Proctor & Gamble (PG)